April data released
Friday by Japan reflected the sales tax hike, which rose from 5 to 8 percent.

Japan’s Prime Minister Shinzo Abe introduced the tax increase to
boost government revenue by about $48.4 billion (5 trillion yen)
in the year until April 2015. It's almost 1 percent of GDP, and
will help the country contain its massive quadrillion yen debt - twice the size of the
economy.

The latest IMF assessment of Japan’s recovery said the expected
export growth would offset the tax hike, as overseas demand
should start recovering.

While the so-called “Abenomics” did have some effect, the annual
inflation rate still remains below the 2 percent target set by
the Central Bank, when the tax hike is factored out.

Experts say stimulating demand should be the focus, as it will
provide the investment necessary for the much desired growth.
They agree Japan still needs deep, structural reforms to support
growth.

"The need for inflation to be meaningful in contributing to a
stable and faster growing economy is through demand and not
through the input of higher prices," AP quotes Stephan
Danninger, the chief of the Asia and Pacific IMF division.

"Near-term risks to the outlook are balanced, but the
sustainability of the recovery over the medium term is at
risk," the IMF said.

A Japanese government report showed industrial production in the
world's third-largest economy fell 2.5 percent from a year
earlier. Household spending also decreased by 4.6 percent,
compared to March’s rise of 7.2 percent. The unemployment rate
remained unchanged at 3.6 percent, the same as a month earlier.

However, some analysts were more upbeat, with Martin Schulz, of
Fujitsu Research Institute telling the BBC "both consumer
spending and retail sales will start rising in the latter half of
the year."

"Consumer spending has declined as expected in April, but
this is likely to be minor blip and will not affect the ongoing
recovery," he said.